Indonesia’s real estate value potential: the role of green innovation and effective management control systems

Farida, Ida; Setiawan, Doddy Article Indonesia’s real estate value potential: the role of green innovation and effective management control systems Cogent Business & Management Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Farida, Ida; Setiawan, Doddy (2024) : Indonesia’s real estate value potential: the role of green innovation and effective management control systems, Cogent Business & Management, ISSN 2331-1975, Taylor & Francis, Abingdon, Vol. 11, Iss. 1, pp. 1-14, https://doi.org/10.1080/23311975.2024.2413384 This Version is available at: https://hdl.handle.net/10419/326606 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Cogent Business & Management ISSN: 2331-1975 (Online) Journal homepage: www.tandfonline.com/journals/oabm20 Indonesia’s real estate value potential: the role of green innovation and effective management control systems Ida Farida & Doddy Setiawan To cite this article: Ida Farida & Doddy Setiawan (2024) Indonesia’s real estate value potential: the role of green innovation and effective management control systems, Cogent Business & Management, 11:1, 2413384, DOI: 10.1080/23311975.2024.2413384 To link to this article: https://doi.org/10.1080/23311975.2024.2413384 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group Published online: 15 Oct 2024. Submit your article to this journal Article views: 714 View related articles View Crossmark data Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oabm20 EntrEprEnEurship & innovation | rEsEarch articlE Cogent Business & ManageMent 2024, VoL. 11, no. 1, 2413384 Indonesia’s real estate value potential: the role of green innovation and effective management control systems ida Faridaa,b and Doddy setiawana,b aDepartment of accounting, Politeknik Harapan Bersama, tegal, Jawa tengah, indonesia; bDepartment of economics and Business, universitas sebelas Maret (uns), surakarta, Jawa tengah, indonesia ABSTRACT Green innovation has expanded into the construction and real estate industry, this innovation is seen by industry players as a way to increase the property value of their products, but to achieve this goal an effective management control system is needed. the purpose of this study is to analyze the relationship between green innovation through a management control system to property value in indonesia. participants of this study are middle to upper-middle-class entrepreneurs in the construction and real estate industry in indonesia, especially the island of Java. Java island was chosen, as it is inhabited by more than 56% of the total population in indonesia. hence, it is not impossible that the structure of the indonesian economy is spatially dominated in Java. there were 200 respondents in this study. the method of this research is quantitative with a structural equation modelling approach. the findings showed that there is a strong relationship between green innovation and property value. Moreover, an effective management control system can also increase future property value creation. nevertheless, when the control system does not run effectively, green innovation will only harm entrepreneurs. 1. Introduction industrialized growth has increased pollution, contaminating air, water, and soil to dangerous levels (patel & patel, 2021; Xin Ma & Zhu, 2024). therefore, economic activity not only improves people’s welfare, but also increases the residue of activities that degrade the environment, such as greenhouse gases, forest loss, or scarce clean water availability. additionally, the construction of buildings that support human activities is also one of the causes of the current environmental degradation (Massimo et al., 2022; voland et al., 2022; Wong etal., 2021). the impact of these buildings on environmental degradation is primarily driven by the excessive use of non-renewable energy sources (leskinen etal., 2020). this environmental degradation has also prompted stakeholders to impose obligations on companies to demonstrate concern for the natural world and the surrounding environment (Zhang et al., 2020). companies strive to mitigate environmental harm while fostering business growth through innovation (latifah, 2020). termed as green innovation, this effective approach encompasses ecologically friendly practices across activities (pan, 2022; Xie et al., 2019). Despite demanding substantial investments in terms of costs and time, innovation yields enduring positive impacts for companies (Kapoor & aggarwal, 2020; regona et al., 2022). the company can implement Eco-efficiency, which serves as a management control system in reducing the company’s impact on the environment and simultaneously creating more value for stakeholders (Zandi et al., 2019). Environmentally friendly products arising from green product innovation are distinguished by reusability, recyclability, and resource efficiency (Marota, 2017). Furthermore, green process innovation optimizes the © 2024 the author(s). Published by informa uK Limited, trading as taylor & Francis group CONTACT ida Farida [email protected]; [email protected] Department of accounting, Politeknik Harapan Bersama, tegal, Jawa tengah, indonesia; Department of economics and Business, universitas sebelas Maret (uns), surakarta, Jawa tengah, indonesia https://doi.org/10.1080/23311975.2024.2413384 this is an open access article distributed under the terms of the Creative Commons attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. the terms on which this article has been published allow the posting of the accepted Manuscript in a repository by the author(s) or with their consent. ARTICLE HISTORY received 26 april 2024 revised 26 september 2024 accepted 2 october 2024 KEYWORDS Management control system; economic development; green innovation; property value; real estate economic SUBJECTS Business, Management and accounting; Economics; Economics and Development; sustainable Development JEL CLASSIFICATION CODE G32; l74; l85; M11; M21; o35 2 i. FariDa anD D. sEtiaWan utilization of raw materials, energy, and water, thereby curbing environmental impact and production expenses (husnaini & tjahjadi, 2020). additionally, green innovation implementation is proven to curtail toxic gas emissions in line with government pollution reduction targets (chinta et al., 2014; Xiang Ma et al., 2022). this topic of the environment needs to be studied and researched more deeply because in indonesia the negative impact of the activities of companies that are not aware of the importance of innovation that is concerned with the environment is still a lot (andi et al., 2020). although distinct companies adopt varied control systems aligned with their specific needs and corporate objectives (Bedford et al., 2016; schäffer et al., 2015). however, the imperative for sustained viability drives the imperative for heightened product quality and refined internal environmental management, facilitated through the implementation of management control systems (Muktiyanto et al., 2020). the management control system function aims to identify deviations or deviations in implementation compared to planning as feedback to take corrective or corrective action for leaders in achieving organizational goals. Broadly speaking, it also includes efforts to prevent the possibility of a division of deviations (fraud) that may occur in the operation of a company (sujana et al., 2020). the assessment framework applied to properties that have embraced sustainability through green building practices via green innovation has been extensively discussed on an international scale (Dai & Xue, 2022; Martel, 2021; Meng et al., 2018; Miller et al., 2020). but there is still no one developing it in indonesia. therefore, this study aims to analyze the relationship (directly and indirectly) between green innovation through management control system to property value in indonesia. in this study, property valuation is carried out using several factors that must be considered, such as physical Factors, Economic Factors, social Factors, Government Factors (regulations), accessibility factors, and Facility availability factors. hopefully, the findings of this research can provide new information about the concept of property value to be reviewed more deeply in the next property management field. 2.Theoretical framework and hypothesis development 2.1. Green innovation (green product and process innovation) Green innovation is broadly defined as the development and implementation of new processes, practices, and products that are environmentally friendly. this includes innovations that reduce the consumption of energy, materials, or emissions while maintaining or improving performance (Xie et al., 2019). Green product innovation refers to creating products that are recyclable, reusable, and energy-efficient, directly appealing to the increasing demand for environmentally friendly goods. these innovations foster sustainability by reducing the environmental footprint and enhancing the long-term viability of companies (husnaini & tjahjadi, 2020). in the construction industry, green innovation plays a pivotal role in shaping the future of real estate development. recent studies suggest that integrating green building principles—such as resource efficiency and eco-friendly design—enhances property value by aligning with consumer preferences for sustainable living (Meng et al., 2018). For example, in green process innovation, companies aim to optimize their operations by minimizing resource usage (e.g. water, energy) and reducing waste, leading to cost savings and environmental benefits (Khan et al., 2021). 2.2. Management control systems a management control system (MCS) is essential for guiding organizations toward strategic goals, particularly when balancing innovation and operational efficiency. Mcs encompasses tools and processes designed to monitor, measure, and guide the performance of different aspects of an organization (Bedford et al., 2016). these systems help mitigate environmental damage by ensuring that innovations align with broader organizational goals, including sustainability (schäffer et al., 2015). Mcs can be categorized into four types: 1. Belief Systems – aligning organizational values with sustainability goals. 2. Boundary Systems – Defining limits for environmental practices and risk management. coGEnt BusinEss & ManaGEMEnt 3 3. Diagnostic Control Systems – using metrics to track environmental performance. 4. Interactive Control Systems – Fostering innovation by encouraging cross-departmental collaboration (Muktiyanto et al., 2020) in the real estate sector, Mcs plays a crucial role in ensuring that construction processes adhere to green innovation principles. By implementing effective controls, companies can maintain productivity while minimizing negative environmental impacts (ruiter et al., 2021). 2.3. Nexus between green innovation and MCS to property value Green innovation, supported by a robust Mcs, significantly impacts property value by addressing both economic and environmental concerns. research by Dai and Xue (2022) suggests that eco-friendly construction practices not only reduce operational costs but also enhance property attractiveness to environmentally conscious buyers. For instance, the Green Building council indonesia has set standards that directly affect the valuation of eco-friendly properties, as buyers increasingly seek homes that offer sustainable living options. Mcs provides the framework necessary to ensure these innovations are efficiently integrated into the company’s operations. For example, diagnostic control systems can track the performance of green innovations by monitoring resource usage and identifying areas where improvements are needed, ultimately driving property value (paul etal., 2014). When green innovation is supported by well-functioning Mcs, it becomes a driver of value creation for companies in the real estate sector, contributing to both financial performance and environmental sustainability. 2.4. Green innovation and property values By implementing innovation in the construction of new buildings with a green innovation concept, there is a hopeful prospect of mitigating global warming (Meng et al., 2018). the standardization of ‘‘green’’ criteria in indonesia was established in 2009 by the Green Building council indonesia, a non-governmental organization. the ‘green’ issue has gained prominence in the realm of architectural design, reflecting the architecture world’s concern and participation in environmental preservation. this underscores how green building (green innovation) can curtail humanity’s exploitation of natural resources (husnaini & tjahjadi, 2020). the greener and more environmentally friendly a residential cluster, the higher the perceived value and interest it garners (Dai & Xue, 2022). Developers are now offering eco-friendly housing designs to cater to sustainable lifestyles and appeal to the high-end market segment (Ma et al., 2022). the eco-friendly concept is even extended to the arrangement of areas and the selection of plant types that can retain water and mitigate carbon emissions (nurdiawansyah et al., 2018). however, the most crucial aspect of implementing the green concept is reshaping residents’ mindsets to take responsibility for the environment. the eco-living concept, grounded in sustainability principles, encompasses various aspects of daily life aiming to minimize negative impacts on the natural environment (Brandl & Zielinska, 2020). the preservation of the environment is of paramount importance, fostering an environment that is conducive to both the inhabitants of the region and the natural habitat. luxury housing projects have begun to thrive as the coviD-19 pandemic gradually abates (Farida & setiawan, 2022). luxury residences no longer solely emphasize the size or scale of the building; they also incorporate intelligent home systems and strategic locations (Brandl & Zielinska, 2020). Moreover, an environmentally friendly concept is increasingly championed by developers to enhance value. With the emergence of the trend of constructing high-rise buildings integrating ‘green’ concepts, there emerges a necessity for property assessment that can interconnect ‘green’ or sustainable elements within the valuation process. this is owing to the fact that ‘green’ and sustainable aspects impact market value, alongside factors such as property type, location, and market conditions (abidoye & chan, 2016; Dai & Xue, 2022; huang & li, 2018; Kumar et al., 2021; sun et al., 2021). Based on this exposition, the research hypotheses are formulated as follows. Hypothesis 1 (H1). Green innovation is strongly related to property value 4 i. FariDa anD D. sEtiaWan 2.5. Management control systems and property values property development companies constitute business entities that invest significant capital to enter the real estate industry (li & Monkkonen, 2014). they span multiple property sub-sectors, encompassing consultancy, land acquisition, construction and development, marketing, and property maintenance. therefore, effective property management necessitates the implementation of a comprehensive management control system, which oversees all operational activities, ranging from planning and organization to coordination and performance evaluation (anisykurlillah & oktaviana, 2020). Moreover, the management control system facilitates the provision of information for efficient and informed decision-making processes (Eroglu & sanders, 2021). throughout the construction process, a myriad of challenges and constraints frequently emerges in the field. virtually all projects encounter issues, both of a technical and non-technical nature, often arising as construction commences. as such, contractors and architects must adeptly analyze and resolve potential issues (Faraji et al., 2022). Given these challenges, the implementation of project control and construction supervision systems becomes paramount. project control involves orchestrating all project activities to ensure optimal functionality, timely execution in line with schedules, and meticulous coordination to deliver quality work (ruiter et al., 2021). construction supervision ensures that the work is carried out in full compliance with plans, adhering to the highest standards. this results in construction products that align precisely with design specifications, showcasing quality, cost-effectiveness, and an alignment with their intended purpose (vale et al., 2021). adequate planning is facilitated through regular supervision, coupled with adeptly addressing challenges that arise during the construction execution. Building upon these assertions, it can be inferred that the implementation of a management control system in business property can exert an influence on the value of the property (anisykurlillah & oktaviana, 2020). Drawing from this exposition, the research hypotheses are formulated as follows. Hypothesis 2 (H2). Management control system has a strong relationship with property value 2.6. Green innovation, management control systems, and property values Green innovation is defined as an innovation that avoids environmental harm and does not pose threats to life (pan, 2022). Green innovation places a strong emphasis on resource efficiency and aims to mitigate environmental impacts in comparison to existing alternatives, achieved through the judicious implementation of suitable technologies. this approach enhances the efficiency of resource utilization and minimizes ecological consequences. it is essential to manage efficiency within the innovation process through effective management control (ruiter etal., 2021). such management control nurtures creativity and innovation in individuals, thereby playing a pivotal role in driving the innovation of novel products (Xiang Ma etal., 2022). this research findings affirm the significance of the Management control system in the development of new products. other scholars have corroborated that the Management control system serves as a catalyst for promoting innovation (Quesado & silva, 2021; rodrigues et al., 2021; rosensten-Berg et al., 2012). in the technology sector, start-up enterprises have explored the role of the Management control system in fostering product innovation. their findings indicate that the Management control system plays a central role in the innovation process (Wonglimpiyarat, 2018). Furthermore, additional research supports the notion that green innovation exerts a substantial positive impact on a company’s valuation, with mediation through environmental management accounting (agustia, 2020). this assertion is underpinned by subsequent investigations that underscore the constructive influence of green innovation on a company’s overall value (husnaini & tjahjadi, 2020). previous studies have primarily focused on firm value rather than property value, yet the derived correlations underscore the substantial impact of innovation on value. in this context, value is regarded as the inherent worth of an object (property). From this exposition, it can be inferred that when the company in question pertains to the real estate sector, it can be asserted that green innovation, facilitated by an appropriate management control system, can indeed influence the property value presented by management to potential property buyers. Building upon this exposition, the following research hypothesis is formulated. Hypothesis 3 (H3). Green innovation through a management control system is strongly related to property value coGEnt BusinEss & ManaGEMEnt 5 3. Research methodology this study employs a quantitative methodology. Data collection is conducted through surveys and the analysis of pertinent literature and references that support the research concept. the research subjects encompass upper-tier entrepreneurs in the construction and real estate sectors in indonesia, with a primary focus on Java island. the choice of Java island is attributed to its population constituting over 56% of indonesia’s total, making it conceivable that the spatial economic structure of indonesia is dominated by provinces within Java. the sample selection technique employs simple random sampling. this study employs simple random sampling to select participants from the population of middleto upper-class real estate entrepreneurs in indonesia, with a focus on Java island. Java is chosen due to its economic significance, as it is home to over 56% of indonesia’s population, making it a key region for understanding property value dynamics. simple random sampling is selected to minimize bias and ensure that each individual in the population has an equal chance of selection. this technique ensures representativeness across various business sizes and sectors within the real estate industry, providing a broad perspective on how green innovation and management control systems affect property value. By adopting this approach, the study aims to draw generalizable conclusions about the role of green innovation in indonesia’s real estate market. to ensure an adequate sample size, a power analysis was conducted, which determined that a sample of 200 respondents would provide sufficient statistical power to detect significant relationships between variables. this sample size also aligns with previous studies in the field, ensuring comparability and robustness of the results. this research was conducted in compliance with the research ethics standards set by the chairman of the research Ethics commission. all research procedures were approved by the research ethics committee of the Faculty of Medicine, universitas sebelas Maret with approval number 166/un27.06.11/KEp/Ec/2022. in this study, we ensured that the rights, privacy, and confidentiality of participants were well protected. the data collected was used only for the purpose of this study and was securely stored to prevent unauthorized access. in compliance with research ethics, all participants were informed about the purpose of the study, and their rights to privacy and confidentiality were maintained. informed consent was obtained prior to participation, and all data were anonymized to protect respondents’ identities. Data collection was conducted through a structured questionnaire, which was distributed to the selected respondents. the questionnaire was developed based on established scales in the literature for measuring green innovation, management control systems, and property value. the questionnaire was adapted from prior research on green innovation (husnaini & tjahjadi, 2020) and management control systems (Bedford etal., 2016). it includes likert-scale questions (ranging from 1 to 5) designed to measure key constructs. the survey items were reviewed by industry experts and academics to ensure content validity. a pilot test was conducted with 10 respondents to identify and address any ambiguities in the questions. the research utilises a likert scale for questionnaire assessment, employing a range from 1 to 5 (likert, 1932). the survey was administered through an online platform to reach a broader audience of real estate entrepreneurs across Java island. the online format ensured quick responses and wide coverage, especially considering geographical constraints. the response rate was 75%, with 200 fully completed surveys received, exceeding the minimum required sample size for statistical analysis. the indicators for the research variables are expounded in table 1, accompanied by their respective definitions. the analysis methodology employed in this study utilizes partial least squares (pls) through the application of the statistical tool known as structural equation modelling (J. hair et al., 2014). sEM was selected because it allows the simultaneous testing of multiple hypotheses and the estimation of direct and indirect effects between variables. Given that this study examines not only the direct effect of green innovation on property value but also the mediating role of management control systems, sEM is the most appropriate tool. unlike traditional regression models, sEM allows for the inclusion of latent variables, offering a more nuanced understanding of the relationships (J. hair et al., 2014). to ensure the reliability and validity of the sEM model, composite reliability was calculated for all constructs, with values above the threshold of 0.70 indicating strong internal consistency (hair et al., 2012). additionally, Cronbach’s alpha was used to further validate the reliability of the constructs, with all variables achieving an alpha value greater than 0.70, signifying sufficient reliability. For model evaluation, R-squared values were calculated for the dependent constructs, with the green innovation 6 i. FariDa anD D. sEtiaWan construct explaining 96.2% of the variance in the management control system, and management control systems explaining 48.4% of the variance in property value. these values indicate that the model is robust and provides a good fit for the data. By adopting this approach, the study ensures that the relationships between green innovation, management control systems, and property value are thoroughly explored, providing a comprehensive understanding of the dynamics within indonesia’s real estate sector. 4. Analysis and results Based on the tables 2, 3, and 4 above, it is evident that the total number of participants in this study amounts to 200 entrepreneurs in the construction and real estate sector, with a composition of 170 males and 30 females. these entrepreneurs encompass a diverse range of educational backgrounds, spanning from senior high school graduates to individuals with master’s degrees. specifically, participants holding a senior high school educational background account for 6 individuals, those with diplomas are 61, while individuals possessing bachelor’s degrees comprise 115, and those with master’s degrees total 18. Furthermore, the findings from the descriptive analysis highlight that the duration of respondents’ business engagements spans from 1 year to over 30 years. additionally, their annual sales turnover exhibits variability, ranging from iDr 15 billion to over iDr 50 billion. this stratification of turnover serves to provide clarity regarding the categorization of entrepreneurs, spanning from middle-class to upper-class. From Figures 1 and 2, the calculated results reveal that the r-square values for all variables are 0.962 and 0.484. this outcome signifies that green innovation is capable of elucidating 96.2% of the variability in the management control system construct and 48.4% of the variability in the property value construct. Table 1. Measurement of research variables. Research variable Variable indicator Variable measurement Management control system,is a process of a manager in ensuring that resources are obtained and used effectively and efficiently in an effort to achieve organizational goals (Bedford et al., 2016). belief systems, boundary systems, diagnostic control systems, and interactive control systems. Likert scale Green innovation,transformational innovative capabilities within companies (Husnaini & tjahjadi, Husnaini & tjahjadi, 2020). 1. use of environmentally friendly raw materials. 2. Products that are easy to find. 3. Product can be recycled. Likert scale Property values, is a process of sequential and simultaneous gradual activities to obtain an estimate or estimate of the value of a property (Lorenz & Lützkendorf, 2011) a. Physical factor b. economic Factors Likert scale Table 2. Location of respondents. gender of business owner totalMan Woman Company location (Province) special Region of Yogyakarta 25 9 34 DKi Jakarta 24 3 27 West Java 49 9 58 Central Java 38 8 46 east Java 34 1 35 total 170 30 200 Table 3. Respondent’s educational background. gender of business owner totalMan Woman Last education Bachelor Degree 95 20 115 Diploma 56 5 61 Master Degree 13 5 18 senior High school 6 0 6 total 170 30 200 coGEnt BusinEss & ManaGEMEnt 7 Based on table 5 the results of the reliability test, it is known that cronbach’s alpha value of all variables is greater than the standard provisions of the reliability test, namely 0.70. high or low reliability is expressed by a value called the reliability coefficient, ranging from 0–1. the reliability coefficient is denoted as rx by x is the case index sought. reliability testing uses cronbach’s alpha formula, as follows: r n n x t t =−     −∑       1 1 2 2 α α rx = the reliability sought n = the number of question items ∑ α t 2 = the sum of the variances of the scores of each item α t 2 = the total variance The Cronbach’s Alpha Value Range, namely • alpha < 0.50 low reliability • 0.50 < alpha < 0.70 moderate reliability • alpha > 0.70 sufficient reliability • alpha > 0.80 then reliability is strong • alpha > 0.90 then reliability is excellent Table 4. Length of business and turnover per year of the respondent. length of business total> 30 Years 1–5 Years 11–15 Years 16–20 Years 21–25 Years 26–30 Years 6–10 Years turnover per year More than Rp. 50 billion 0 0 1 0 1 1 1 4 iDR 15 Billion – iDR 25 Billion 1 26 34 11 3 2 56 133 iDR 26 Billion – iDR 36 Billion 0 2 18 9 2 0 23 54 iDR 37 Billion – iDR 50 Billion 0 0 7 0 0 0 2 9 total 1 28 60 20 6 3 82 200 Figure 1. inner model test result (R square). 14 i. FariDa anD D. sEtiaWan regona, M., Yigitcanlar, t., Xia, B., & li, r. Y. M. (2022). opportunities and adoption challenges of ai in the construction industry: a prisMa review. Journal of Open Innovation: Technology, Market, and Complexity, 8(1), 45. https:// doi.org/10.3390/joitmc8010045 rodrigues, M., alves, M. D. c., oliveira, c., vale, J., & silva, r. (2021). the impact of strategy, environment, and the management system on the foreign subsidiary: the implication for open innovation. 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